Home Equity Line of Credit (HELOC) is a second loan on your primary or investment property. HELOC allows you to pull funds as you need them and pay it back unlike your mortgage. Interest on HELOC is variable interest rate however you do have some options to lock them for period of time. HELOC is a great tool to be used for remodeling, addition and or even keeping funds for rainy day. How to qualify for HELOC
HELOC qualification are very similar to mortgage, a lender will look for the followings:
- Your FICO scores the higher your score the better your interest rates in most cases
- Debt to income (DTI) your ability to repay
- Loan to value (LTV) this is the first thing any lenders looks for if you have enough equity in the home
HELOC cost far less than your traditional cash out refinance and has a annual fees to maintain, and closing your HELOC usually has a cancellation fee that a lender may charge. Please keep in mind if you are refinancing or selling your home in the future you will have to decide what you want to do with the existing HELOC balance. If you are refinancing and have an existing HELOC you will have few options, such as subordinating the existing HELOC or combining it with your new loan and a qualified loan officer would be able to assist you making that decision what options are better for you. If you decided to sell the property, then you have no option to pay off the existing HELOC. Don’t worry this can be done at the time of closing and your Escrow officer / Title Co. will assist you paying off and recording, assuming you have enough equity in your home.Like any products HELOC rules changes, so best advice is to reach out and get the latest information.